IRVINE, CA—The secret to maintaining existing tenants even while raising rents in a value-add office property is management quality in addition to the enhancements made to a property, the Muller Co.'s Jon Muller tells GlobeSt.com. The combination seems to be a winning one for the firm, which has acquired and operated over 30 million square feet of office, industrial and retail space across greater Los Angeles, Orange County, San Diego County, the Inland Empire, Northern California and Arizona in the 35-plus years it has been in existence.

The Muller Co. recently formed a joint venture with an affiliate of Cerberus Capital Management L.P., a global leader in alternative investing, for the recapitalization of the firm's three-property, class-A, high-rise 841,036-square-foot office portfolio in Orange County. The portfolio comprises of Airport Tower, a 17-story, 237,659-square-foot Energy Star, LEED-Silver-Certified office building at 18881 Von Karman Ave. in Irvine; Orange Executive Tower, a 16-story, 388,374-square-foot, energy-efficient office building at 1100 Town & Country Rd. in Orange; and Main Street Town Center, a 10-story, 215,003-square-foot energy-efficient office building at 2677 N. Main St. in Santa Ana.
Muller says that on a transaction of this size, it's important to find a partner whose investment strategy and horizon is well aligned with his company's. “Recapitalizations are always difficult because, as the sponsor, we have a responsibility to our existing partner as well as our new one during the transaction, all while putting new financing in place.”
The Orange County office markets are still very robust, he says, pointing out that demand is strong and leasing activity and rates are very healthy. “Recent sales continue to set benchmarks on a price-per-square-foot basis.
Regarding his firm's approach to adding value, Muller says it is two-pronged. First, it addresses the physical qualities of the property to enhance its status in the market. These can include updating lobbies, corridors, entryways, etc., as well as adding tenant amenities such as food service, gyms and indoor/outdoor gathering areas. “Once these physical upgrades are complete, we can push rents to match similar quality properties in the market and increase revenue from new tenants as well as existing tenants with lease rollover.”

Muller notes that the firm has a strong history of maintaining existing tenants even while raising rents “due to the quality of our management and the enhancements we make to our properties.”